Meaning of petty cash book - class-XI

To reconcile means to find out the differences if any between two or more things and eliminate it. Now, in case of any banking transactions for each deposit or withdrawal the entry is recorded at two places.

Whenever money is deposited in bank  or withdrawn from bank it is recorded in two places.

Pass book overdraft can be simply stated as debit/negative balance in the pass book. Which means the account holder has overdrawn from his account . So when a banker collects bills and credits the amount what happens is that the amount of bill is being received into the account and as a result the liability of the account holder is being reduced. Therefore, after the credit of the bill into the account the pass book overdraft would get reduced and show a lower debit balance than before.

True. Pass book is a copy of customer's account in the books of the bank. It shows all the transactions of a customer with the bank from the point of view of the bank as it is prepared by the bank.

True. 

True. Cheques deposited but not collected are those cheques which are received by the business from its customers or debtors. The business records such cheques in its books by debiting the cash book, which increases the cash book balance and then deposits them into the bank for collection. However, the bank credits the pass book only when such cheques are cleared.

True. A business firm periodically prepares bank reconciliation statement to reconcile the balances as per cash book and pass book as it is the responsibility of the business to present a true and fair picture of its books of accounts to various stakeholders.

False. When payments are made by the bank on behalf of the customer, the bank will reduce the balance in the pass book. However, the customer will be able to reduce the balance in the cash book only when he receives information about the same. Thus the balance in cash book will be more than the pass book. This difference arises only because of time difference in recording of the transaction.

True. 

A bank reconciliation statement compares the balances of cash book which is prepared by the firm and the pass book which is prepared by the bank. It is prepared to identify the errors and differences between the two balances. Thus differences caused by errors are either errors committed in recording transactions by the firm or errors committed in recording transactions by the bank.

A direct deposit is a deposit which is directly made into the bank account without recording it in the cash book. So the balance as per pass book increases as compared to the balance as per cash book. Thus, when balance as per cash book is the starting point, a direct deposit is added to arrive at the balance as per pass book.

There are three(3) ways to prepare the bank reconciliation namely:

1. Take the book balance and reconcile it to the bank balance
2. Take the bank balance and reconcile it to the book balance
3. Take the book balance and reconcile it to an adjusted cash balance, then take the bank balance and reconcile it to the adjusted cash balance

A bank reconciliation statement is a reconciliation statement between the balances of cash book (bank column) and pass book (bank statement). It is prepared by the business firm to identify and adjust the causes of differences between the two balances.

A bank reconciliation statement is prepared to reconcile the differences between the balances as per cash book (bank balance) and pass book (bank statement). It is prepared by taking any of the two balances as the base, accommodating all the causes of differences and finally arriving at the other balance. Thus it is prepared with the help of either cash book or pass book depending on whose balance we take as the base.

True. Bank reconciliation statement is prepared by the account holder / business firm/ company and not any third party or the bank as it is the responsibility of the business firm/ company to present a true and fair picture of its books of accounts to its various stakeholders.

Balance Sheet of a bank is a collation of any accounts maintained by the customers, hence pass book can never be a balance sheet neither can it be a balance. 'Mode' can be online banking or offline banking and has nothing to do with the pass book.

Numerous accounts are maintained with the bank viz., current account, savings account,recurring account, etc.

Bank reconciliation statement is a report which compares the bank balance as per company's accounting records with the balance stated in the bank statement. It is normal for a company's bank balance as per the accounting records to differ from the balance as per bank statement due to timing differences. Certain transactions are recorded by the entity that are updated in the bank's system after a certain time lag. Bank reconciliation statement is a part of cash book. The cash book and pass book/bank statement are prepared separately. The businessman prepares the cash book and the pass book is prepared by the bank.

It is generally experienced that when a comparison is made between the bank balance as shown in the firm's cash book, the two balances do not tally. Hence, to first ascertain the causes of difference thereof and then reflect them in a statement called Bank Reconciliation Statement to reconcile (tally) the two balances. Reconciliation of the cash book and the bank passbook balances amounts to an explanation of differences between them. The differences between the cash book and bank passbook is caused by:

Any entry on the credit side of the pass book implies that the asset of the account holder( the amount reflecting as his bank balance) has increased and the liability of the bank has increased simultaneously. Now, cash/cheque deposited in bank leads to increase in the bank balance of the account holder and hence would be shown on the credit side of the pass book.

A trial balance is a list of the closing balances of all the ledger accounts and usually the first step in the preparation of final accounts. A trial balance may be a test of mathematical accuracy when the debit side equals the credit side. However, it does not necessarily mean that the ledgers are made with accounting accuracy. Thus a trial balance may agree when the debit side equals the crdeit side even if there are some errors. There can be following types of errors:

Error of Omission does not affect Trial Balance.

In case of deposits in transit and cheques not collected , when these items get cleared they lead to increase in the bank balance and at the present moment the pass book balance would be less than the cash book balance.

A bank pass book is 'copy' of a customer's account in bank books.

Bank Reconciliation statement is prepared in order to reconcile the balance as per the bank pass book and balance as per the cash account maintained by the business in the form of cash book after taking into consideration other aspects like cheques issued but not presented for payment, cash in transit, cheque in transit, etc.

Whenever money is deposited in bank  or withdrawn from bank it is recorded in two places.

When we say that cash book has a debit balance it means that the debit side of the cash book is more than the credit side. On the debit side we record cash receipts and on the debit side we record cash payments. So if there is a debit balance as per cash book then it means there is cash balance with us.

To reconcile means to find out the differences if any between two or more things and eliminate it. Now, in case of any banking transactions for each deposit or withdrawal the entry is recorded at two places.

Bank reconciliation statement is an exercise to ascertain the difference between the bank statements and cash book maintained by the business.

Cash book is  maintained to record the cash receipts and cash payments. So if we start with some cash balance in hand then add cash receipts and deduct cash expenses the balance figure what we get is  the cash in hand amount.

Cheques issued represent payments made. So when cheques are issued and presented for payment it would lead to decrease in the bank balance as per both  pass book and cash book. But, if cheques are not presented within the period then the bank would not consider those cheques and the bank balance as per pass book would be higher than bank balance as per cash book. 

Interest on balance would require an adjusting entry if appearing on a bank reconciliation, because outstanding cheques and deposits in transit are merely time differences which would get cleared automatically and adjusted cash balance is already taken care for the errors. Whereas interest on balance would be cleared only when an entry for the same is passed in the cash book.

If an entry is recorded in either the cash book or the pass book first and not updated in either of them on a later date, it may lead to a difference between them both.

True. Interest charged by bank is an expense for the business. It is credited in the cash book when it is paid by the business, thereby reducing the balance in the cash book (bank column). So, when overdraft as per pass book is the starting point for preparing bank reconciliation statement, interest charged by bank will be deducted to arrive at the balance as per cash book at the end.

A bank statement is an extract from bank ledger and hence it is to be read from bank's view point which shows a credit balance in the pass book.

A passbook is a copy of customer's account in the bank's books. it is prepared by the bank and shows all the transactions of a customer like deposits, withdrawals, interest payment / receipt etc. with the bank from the point of view of the bank.

The pass book is just a copy of the account statement as maintained by the bank. So if the pass book reflects a debit balance it means that the account is in the nature of a debtor/receivable for the bank and  it would be the opposite for the account holder. From his point of view he would be having a negative balance in his account and hence a liability/payable.

Banks do commit errors that can cause a difference in balance as per the cash book and the pass book.

An extract from bank ledger is a bank statement.

False. Interest charged by bank will be added when the overdraft as per cash book is taken as starting point for preparing the bank reconciliation statement. Interest charged by bank is an expense for the business which reduces the balance as per pass book. The business has not recorded this transaction in the cash book yet as it  has not received any information about it. So, to arrive at the balance as per pass book, it is added to the overdraft balance as per cash book.

True. Direct collection received by the bank will increase the balance as per pass book as the bank will credit the passbook as the funds are transferred into the customers bank account. This increases the bank passbook balance as compared to cash book balance as the customer has no information about such transaction and has not recorded it in the cash book. This difference in balance arises due to time difference in recording of the transaction.

Collection charges and incidental charges are the charges levied by the bank for collecting debt for the customer. These expenses are first levied by the bank and then intimated to the customer. Thus, they are first reflected in the pass book.

The journal entry in the  books of the account holder when a cheque is deposited is as follows :

True. Cash book is debited when cash comes in and credited when cash goes out. So, when we receive the cheque, cash book is debited. And, when we further endorse the cheque, the cash book is credited. Thus, endoresed cheque appears on both sides of the cash book.

Cash book is a unique kind of subsidiary book. It plays a dual role. It acts as the book of original entry or prime entry and also as ledger. It is a subsidiary book because entries are first posted in the cash book and then, from there, it is posted in other ledger accounts.

A bank reconciliation statement is prepared to reconcile the balnaces as per cash book (bank column) with the balances as per pass book (bank statement). 

Bank does not send any statement like a 'reconciliation statement' but only provides a 'bank statement'/ 'bank pass book' which gives us the details of transactions undertaken during the period. In fact, bank reconciliation statement is prepared by the business, only to verify the balance as per bank column of cash book and bank statement.It is an important statement for the business.

An unadjusted cash book balance is such balance in which the items only accounted in pass book have not been adjusted yet. 

Bank reconciliation statement is prepared to to reconcile the balances as per cash book (bank column) and pass book (bank statement) by identifying the causes of differences between the two for a particular period. If the two balances match, then there is no need for bank reconciliation statement. So, it is true for a bank reconciliation statement, that it is prepared on a particular date or a single transaction is recorded both in bank passbook as well as in bank cash book or all that the transaction recorded in cash book is as per the client view point. But, but it is not true for a bank reconciliation statement that the balance as per cash book and passbook are same as when the two balances are same, bank reconciliation statement is not required.

In case when the bank collects a note for the depositor the entry for the same would have been entered in the bank statement and so the cash book balance would be less than the bank statement balance.

Outstanding cheques are those cheques which have been issued for payment by the business to its suppliers or creditors but have not yet been presented for payment. This means they have been received in the cash book by crediting the cash book. So, in bank reconciliation statement, the account of outstanding cheques is added to adjusted to book balance of cash.

Bank reconciliation statement is a statement prepared by the business to reconcile the differences between the balances as per cash book and pass book on periodic basis. Generally it is done on monthly basis when the business receives the bank statement. It may also be prepared on yearly basis from January to December or some other certain period basis.

Overdraft means we have taken a loan from the bank. It is indicated by negative or credit balance in the bank column of the cash book. It is shown in the 'plus' column of the cash book, all the causes of differences are accommodated to arrive at the other balance in order to reconcile the two differences at the time of preparing bank reconciliation statement for a particular period.

In the present case the cash book balance is more than the bank statement balance by $Rs. 90.09 (430.65 - 340.56) $ as the payment is recorded at the wrong amount by the book keeper.

'Reconciliation' between the cash book and the bank statement is the purpose of Bank reconciliation.

'Withdrawal' is money withdrawn by the business from the bank account from the available balance.

A bank reconciliation statement is prepared to reconcile the differences between the balance as per cash book (bank column) and balance as per pass book (bank statement by identifying the causes of differences between the two. So, in the case where the balance of cash book and pass book matches, it need not be prepared. Also, it is not required to be prepared by any act or the bank. It is prepared by the business (accountant) as per the time period it deems fit.

Errors can also be made by the bank and hence it is not necessary only the business preparing cash book shall make errors.

Of the given options, event of  dis-honoured cheques and discounting of bill is reflected in the pass book first and not in the cash book since it is dependent on happening of an event.

Errors may be committed not only by the firm but also the bank of the account holder. The difference between cash book and pass book can be due to errors in any of these which may not allow them to tally and these errors or frauds may reflect in bank reconciliation statement.

If anything is left to be entered in the cash book (incomplete recording) , it might not show a true picture and will not lead to tallying of both the books.

Bank reconciliation statement is prepared to know the causes of difference between the balance as per bank column of the cash book and the passbook. This is because, both of these accounts show same transactions but with different point of views. The cash book is prepared with the point of view of the customer and the passbook is prepared with the point of view of the bank.

Interest allowed by bank would lead to increase in the bank balance but, it would not be entered in the cash book until and unless the account holder views it in his pass book. 

Debit balance as per bank statement means that it is an bank overdraft and that the cash book would be having a credit  balance. When cheque is issued but not presented for payment, the entry for the same would be credited in the cash book and so the cash book negative balance would increase by that much amount.

Direct deposits by customers lead to increase in the bank balance , but the entry for the same would be entered in the cash book only after the account holder views it in his pass book.

Cash Book:

To reconcile means to find out the differences if any between two or more things and eliminate it. Now, in case of any banking transactions for each deposit or withdrawal the entry is recorded at two places.

When starting with the Cash Book balance, uncollected cheques (cheques sent to the bank but not yet cleared) mean the bank balance is lower than the cash book balance. Therefore, they must be subtracted to reconcile.

Unpresented cheques are cheques issued by the business but not yet presented for payment at the bank. Since the cash book balance was reduced when the cheque was issued, but the bank balance has not yet been reduced, the cash book balance is lower than the bank balance; thus, it must be added.

A bank overdraft is a credit facility that allows an account holder to withdraw more money than is available in their current account, up to a pre-approved limit.

A Bank Reconciliation Statement is a document prepared by the account holder (the business) to reconcile their internal records (Cash Book) with the bank's records (Pass Book).

The cash book was supposed to show a debit of 112 but shows a credit of 121. The difference is 112 + 121 = 233. Since the balance was recorded as a credit instead of a debit, the cash book is understated by 233, so it must be added to reconcile.

When using an Amended Cash Book, all standard timing differences (like bank charges or direct payments) are already adjusted in the cash book. A wrong entry in the Pass Book is an error made by the bank, which must be adjusted in the BRS.